The present invention relates generally to methods for interacting with users of an investment portfolio manager. More particularly, the present invention relates to a method for interacting with an unsophisticated user of an investment portfolio manager that is implemented on a computer, which is coupled to a central controller via a computer network for implementing trades determined by the investment portfolio manager.
More and more people today are investing in stocks and other securities. To advise these new investors, investment managers must obtain answers from them regarding relatively sophisticated concepts of probability and risk related to investment options. When meeting in person with a new investor, an investment manager can tailor his or her presentation to match the education and experience of the individual investor. However, the costs associated with personal investment managers have led to attempts to create computer-based programs for instructing individuals as to how to structure their investments, thereby allowing investment firms to allocate resources more efficiently.
All investment advisor computer programs must interact with the individual in a way that accommodates all types of individuals with widely varying levels of education, investment experience, and computer literacy. Moreover, the computer program must do so quickly and efficiently. Users of the investment manager (xe2x80x9cusersxe2x80x9d) tend to abandon the use of computer programs that are difficult to use and are not relatively self-explanatory, causing the operator of the service being implemented via the computer program to lose potential revenue. It is especially important that the interface between the user and an Internet-based service operate intuitively and easily, because most Internet-based services, including investment services, require large numbers of satisfied users to reach profitability.
In particular, investment advisors must question the investor to determine the investor""s goals and risk tolerance. These relatively esoteric concepts must be explained in a way that allows the individual to provide a quantitative answer to a relatively open question. Usually, this process involves the estimation of this quantitative value by the investment advisor based on some understanding of the investor""s lifestyle, education and lifetime goals. When working with a computer program, such interactive sessions are difficult to orchestrate with predictable results in a way that users find intuitive.
Some attempts to simplify user interfaces to computer-based investment advisors have been attempted. For example, PCT patent application WO 98/44444 discloses a method and apparatus for a virtual investment advisor and support system. In FIGS. 7a through 7c of this reference, the results of an optimizer feature are shown. In a preferred embodiment of this optimizer feature, the virtual investment advisor makes use of existing analytical tools, such as modern portfolio theory, efficient portfolios, linear regression analysis, etc., to screen securities for potential inclusion in a portfolio. FIG. 7a, for example, shows as a blue bar the probable retirement income that an investor with certain specified characteristics including income, needs, savings, life expectancy, etc., would obtain by holding a portfolio of 40% government bond funds and 60% growth and income funds. The smaller graph in FIG. 7a shows expected return of the xe2x80x9cefficient portfoliosxe2x80x9d constructed according to modem portfolio theory (those combinations of the seven investment classes that have maximum return for a given volatility risk). Return is shown on the y-axis, portfolio number on the x-axis, with the median, 70% confidence (70% chance of meeting or exceeding indicated return) over a 3-year time horizon. In the smaller chart of FIG. 7a, the vertical gold line indicates the 40/60 mixture portfolio. FIG. 7c shows a 20-year time horizon. Note that for the same portfolio, the 70% and 90% confidence curves have moved up, reflecting the notion that over a longer period an investor can reasonably accept more risk. Note that the median does not change with the time horizon. FIG. 7b shows 20 years, but the optimizer of a virtual investment advisor of the present invention has found the portfolio with the optimum 90% confidence. Note that in a preferred embodiment, the confidence-based optimizer will find different portfolios at three years based on confidence level required (each confidence level""s maximum point may correspond to a different portfolio). While this system attempts to educate the user, it fails to provide a simple and effective way for the user to provide the information required to enable the computer-based investment advisor to recommend a portfolio of investments.
The present invention is therefore directed to the problem of using a computer to obtain quantitative answers to questions based on the sophisticated concepts of risk and reward from investors with a wide range of experience and sophistication.
The present invention solves the problem of using a computer to obtain quantitative answers to questions based on the sophisticated concepts of risk and reward from investors with a wide range of experience and sophistication. Embodiments of the present invention graphically explains the concepts of risk and reward and allows the user to input user preference information as an overlay on the graph. According to one embodiment, the user may interactively modify the user preference information overlay and observe the effect the user preference information has on the graph. In this embodiment, once satisfied with the user preference selection, the user may confirm his selection, which is translated to the investment management program as a quantitative reply. Each modification of the user preference information overlay may cause a recalculation of the underlying graph and a display of the revised underlying graph, thereby graphically imparting the impact of the user""s selection to the user in a simple, but effective way.
According to another aspect of the present invention, the impact of the user preference information selection may be provided to the user in the form of an audible recording. In this aspect of the present invention, one form of audio recording may be used to represent higher risk/higher return selections, whereas another form of audio recording, having audio characteristics that vary from the first form of audio recording, may be used to represent lower risk/lower return selections. For example, an audio recording with a slow beat or rhythm may be used for one extreme, such as low risk/low return, and an audio recording with a faster beat or rhythm may be used for the other extreme, such as high risk/high return.
According to another aspect of the present invention, a method for obtaining a user""s risk tolerance for use in creating and managing a portfolio of investments using a computer implemented portfolio management system coupled to a central controller receiving instructions to trade specific instruments to implement the user""s portfolio by buying and selling said specific instruments among a plurality of other users and external third parties includes several steps. First, the method receives input from a user as to the user""s preferred time horizon. Next, the method displays as a graph possible outcomes of a hypothetical investment over the user""s preferred time horizon using an exemplary risk tolerance. The method also includes the step of providing a user a selectable risk tolerance control panel via which the user may modify the risk tolerance. In addition, the method updates the display of the graph of possible outcomes interactively as the user modifies the risk tolerance.
According to another aspect of the present invention, the above method includes the step of outputting a user""s risk tolerance to the portfolio management system upon an indication by the user that the user is satisfied with the current setting of risk tolerance.
According to another aspect of the present invention, the above method further includes the step of displaying several outcome certainty regions in the graph. Each of the outcome certainty regions represents a section where the likelihood of actually achieving a particular result included in the section falls within a predetermined probability.
According to another aspect of the present invention, in the above method the predetermined probabilities include at least a high likelihood and a low likelihood.
According to another aspect of the present invention, in the above method the high likelihood comprises approximately 50%, and the low likelihood comprises approximately 5%.
According to yet another aspect of the present invention, a method for obtaining a user""s risk tolerance for use in creating and managing a portfolio of investments using a computer implemented portfolio management system coupled to a central controller receiving instructions to trade specific instruments to implement the user""s portfolio by buying and selling said specific instruments among a plurality of other users and external third parties, includes the following steps. A graph of possible outcomes of a hypothetical investment for a user selectable time period is displayed. Overlaid on the graph is a bar representing a user""s risk tolerance. One axis of the graph represents a range of possible risk tolerances. Also overlaid on the graph is a line representing a risk represented by an overall market. The user is enabled to drag the bar representing the user""s risk tolerance across the graph. A first portion of the graph to one side of the bar represents those possible outcomes of the hypothetical investment created using a current value of the user""s risk tolerance.
According to another aspect of the present invention, in the above method a second portion of the graph to another side of the bar represents those possible outcomes of the hypothetical investment created using the current value of the user""s risk tolerance that will not occur.
According to another aspect of the present invention, the above method further includes the step of shading the second portion differently than the first portion as the user moves the bar representing the user""s risk tolerance.
According to another aspect of the present invention, the above method further includes the step of removing the second portion from view as the user moves the bar representing the user""s risk tolerance.
According to another aspect of the present invention, the above method is modified to present returns on the Y-axis and risk on the X-axis. The risk controller is moved from a vertical device alongside the graph to a horizontal device underneath the graph.
According to another aspect of the present invention, an apparatus for obtaining a user""s risk tolerance for use in creating and managing a portfolio of investments using a computer implemented portfolio management system coupled to a central controller receiving instructions to trade specific instruments to implement the user""s portfolio by buying and selling said specific instruments among a plurality of other users and external third parties includes a processor, a graphical user interface and an input/output device. The processor calculates possible outcomes of a hypothetical investment over a user""s selectable time horizon using a predetermined risk tolerance value and generates a graph of the possible outcomes. The graphical user interface is coupled to the processor and includes a display displaying the graph of possible outcomes of the hypothetical investment. The graphical user interface also includes an input/output device via which the user may modify the predetermined risk tolerance value, which input/output device outputs the modified risk tolerance value to the processor. The processor recalculates the possible outcomes of the hypothetical investment using the modified risk tolerance value received from the input/output device and regenerates the graph of recalculated possible outcomes. The processor then displays the graph of recalculated possible outcomes to the graphical user interface, which updates the display.
According to another aspect of the present invention, in the above apparatus the input/output device outputs the current risk tolerance value to the portfolio management system upon an indication by the user that the user is satisfied with the current setting of risk tolerance.
According to another aspect of the present invention, in the above apparatus the input/output device includes a risk tolerance control panel.
According to another aspect of the present invention, in the above apparatus the risk tolerance control panel includes a slidable bar.
According to another aspect of the present invention, in the above apparatus the risk tolerance control panel includes a risk thermometer having a plurality of selectable values of risk tolerance.